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Table 2.1 contains information on three techniques for producing $15 worth of ba

ID: 1239273 • Letter: T

Question

Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume that we said "$15 worth of bar soap cost $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars) So the techniques produce 5 bars of soap each. a. what technique will you want to use if the price of a bar of soap falls to $2.75? what if the price of a bar of soap rises to $4? to $5? b. how many bars of soap will you want to produce if the price of a bar of soap falls to $2.00? c. suppose that the price of soap is again $3 per bar but that the prices of all four resources are now $1 per unit. Which is now the least-profitable technique? d. if the resource prices return to their original levels but a new technique is invented that can produce 3 bars of soap using 1 unit of each of he four resources, will firms prefer the new technique?

Explanation / Answer

Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume that we said "$15 worth of bar soap cost $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars) So the techniques produce 5 bars of soap each.

a. what technique will you want to use if the price of a bar of soap falls to $2.75? what if the price of a bar of soap rises to $4? to $5?

(a)    Technique 2, Technique 2, Technique 2;

b. how many bars of soap will you want to produce if the price of a bar of soap falls to $2.00?

Zero. it is not profitable to produce bars of soap at this selling price;

c. suppose that the price of soap is again $3 per bar but that the prices of all four resources are now $1 per unit. Which is now the least-profitable technique?

Technique 3;

d. if the resource prices return to their original levels but a new technique is invented that can produce 3 bars of soap using 1 unit of each of he four resources, will firms prefer the new technique?

No,

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